The coming clean tech crash

July 14, 2011: 8:30 AM ET

Forget about the tech bubble. The clean tech industry has been inflating for years, thanks to generous government financing. But that's about to change.

So clean, so expensive.

FORTUNE -- As federal stimulus spending dries up, the clean tech industry faces a "funding cliff" at the end of this year that could jeopardize one of the few economic sectors that is producing job growth, according to a report issued by the Brookings Institution.

Such is the peril when an industry is supported by fickle government financing (as opposed to the more reliable, if far less needed, government financing enjoyed by industries like agriculture and petroleum).

The report, "Sizing the Clean Economy: A National and Regional Green Jobs Assessment," is an attempt to address the fact that there is an "absence of standard definitions and data" about the "clean economy."

For example, what are "green jobs," anyway? It's not so easy to define. The report distinguishes between the "clean economy" and the "clean tech industry." The former "employs more workers than the fossil fuel industry," which might sound surprising until you learn that the "clean economy" includes people working in mature industries like mass transit and manufacturing. The clean economy grew more slowly than the national economy between 2003 and 2007, but the clean-tech sector – which includes makers of solar panels, fuel cells, biofuels and the like – saw "explosive growth" and outdid the economy as a whole during the recession.

But whether that growth can continue is an open question. It largely depends on government – and with states going broke and federal stimulus funds going away, it seems almost inevitable that there will be a clean-tech crash. Devon Swezey of The Breakthough Institute put it succinctly when he recently made the hard prediction that a crash is coming. "Clean energy is still much more expensive and less reliable than coal or gas," he wrote, "and in an era of heightened budget austerity the subsidies required to make clean energy artificially cheaper are becoming unsustainable."

When high prices put a heavy lid on demand for socially desirable products, subsidy has to be long-term and reliable – in place until the industry can sustain itself, and finance its growth privately. Semi-regular infusions of cash tend to create booms and busts. Right now, we're headed for a bust.

A particularly dispiriting outcome of all this is that in the absence of a firm, long-term commitment from the federal government, many U.S. clean tech firms are looking to China for investment. Meanwhile, we're arguing over light bulbs.

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